Diesel margins stay wide as crude retreats, keeping pump prices near $3.88
Crude has fallen. Diesel has not, because refining margins are wide. The U.S. average for regular unleaded was $3.88 a gallon on July 10, per Bloomberg data cited in reporting on the spread between crude and products. Crude has given back most of the gains it took on during the Iran conflict and the Strait of Hormuz disruptions. Product prices have not followed it down.
For anyone hauling fuel or running a fleet, that is the main cost story this month. The same reporting puts the crack spread at or near record levels, which means the refiner is capturing the value that used to show up as relief at the rack. Carriers who expected diesel to fall with Brent have not seen it.
The surcharge lag
Fuel surcharges are indexed to retail diesel, and retail diesel is holding up. That cuts both ways. Shippers who agreed to surcharge schedules when crude was spiking are still paying them, and carriers who priced base rates against an assumption of cheaper diesel later in the summer are the ones eating the difference.
The mechanics are simple enough. A refiner buys crude and sells the products it makes from it. When the gap between what it pays and what it sells for is wide, the refiner has no reason to chase volume down in price. Crude falling does not force product prices lower on its own. It only widens the margin until someone adds supply.
Supply is the condition to watch. Margins this wide usually pull barrels into the market. Whether they do it fast enough to matter for third-quarter surcharge tables is a different question.
Russian refining
Ukraine struck a Russian oil refinery and shadow-fleet tankers, according to TVP World. The direct US supply effect is limited, since we do not buy Russian product. The indirect effect runs through the global market. Russian diesel that does not reach its buyer pushes that buyer into the same global product pool US refiners sell into, and it does it at a moment when product supply is the tight part of the chain.
A strike on a refinery matters more to a US hauler right now than a headline about crude prices easing. Refining capacity looks like the constraint. Attacks on it, wherever they happen, could keep cracks wide.
What to watch
Whether refiners bring more product to market to chase these margins, and how quickly. Watch the retail diesel print that surcharge schedules key off, because that is the number your customers are likely to argue about. And watch for further strikes on Russian refining capacity, which could keep the product market tight even as crude keeps drifting.